CPH 2016 Demo

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CPH® Study Guide
Chapter 1: Canadian Securities Industry
Registrant Code of Ethics and Standards of Conduct
Designed for use with the money-back-guaranteed Online CPH® Practice Exams and Flash Cards
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5
Know Your Product
Knowing your client's personal and financial situation is only the beginning. In order to
exercise due diligence, you as an advisor also need to understand how a product is
constructed and how it is likely to perform given market conditions. This is known as the
"Know Your Product" requirement.
In 2009, two notices were released to give guidance to members on Know Your Product
requirements:
• IIROC released "Best Practices for Due Diligence".
• The Canadian Securities Administrators released "Suitability and Know Your
Product".
Dealers themselves must have the required skills to review a new product and cannot rely
on the work of others in performing the review except for factual information provided
by the product manufacturer. The following are some of the practices that dealers should
implement:
• Create written procedures for new product reviews.
• Establish a review committee to approve or disapprove new products.
• Maintain a consistent standard for reviews across the firm.
• Provide training for sales representatives on new products including follow-up and
review.
• Review products that have materially changed much as a new product would be.
• Determine if new systems are required to support the new product.
• If approved, consider the appropriate level of post-review (ongoing review).
Distribution of Non-Arm's-Length Investments (Not In-House Proprietary
Products)
IIROC also has the following expectations of dealer members and requires them to follow
three steps when distributing non-arm's-length investments:
Step 1: Product due diligence of non-arm's-length investments (understand products
they distribute).